Air cargo investment magnets

Thursday, April 25, 2013

Some airports are gaining ground, while others turn off shippers.

By Jon Ross

If you want to invest in air cargo infrastructure, the best places in the United States for this activity are Miami, Chicago and Memphis, according to Jones Lang LaSalle’s recently released 2013 U.S. Airport Outlook.
The list took into account not only each airport’s current cargo activity and infrastructure, but also looked at land around these facilities, weighing the likelihood that the airport would fuel economic growth. The study ultimately showed what shippers and manufacturers need to know when choosing where to locate a new business or expand an existing facility.
The presence of an integrator hub was important in these rankings. However, Memphis, which houses FedEx, came in third on the list, so the aspect of cargo growth and the real estate potential in the area outweighed the activity of a single giant express company.
JFK Airport in New York and Atlanta’s Hartsfield-Jackson International Airport, which finished sixth and eighth on the list, respectively, aren’t home to an integrator. However, they still ranked high on Jones Lang LaSalle’s list, and with those two airports, the existence of a cargo plan and a clear goal pushed them to the fore.
“When you look at JFK, when you look at Atlanta… they all have multi-year capital investment plans; they all have long-term growth strategies,” said Jones Lang LaSalle’s Aaron Ahlburn. “Just via that, they are thinking about how they sell themselves, how they act competitively and what they can do to diversify the amount of throughput that is coming in and out of the airport.”
The report suggested airports that want to improve their cargo throughput and become major freight players look at investment internally as well, making sure their facilities are appealing to shippers and outside investors.
“It’s investment in infrastructure, it’s investment in the cargo facilities, it’s an investment in protocols — working with freight forwarders, working with customs authorities, working with shippers,” Ahlburn said, noting there’s no one silver bullet answer for airports in general; each airport needs to approach the cargo question from its own unique angle.
According to the Airports Council International, Hartsfield-Jackson airport is the top airport in the world for passenger activity, but has yet to enter ACI’s top 30 airports for cargo. That disparity doesn’t take away from the importance of cargo at the airport. In fact, one of the first steps of the airport’s Navigate to 2030 master plan, which is currently being developed, is to outline a path forward for cargo. Airport officials also recently announced the development of a fourth cargo building at Hartsfield-Jackson.
Bob Pertierra, vice president of supply chain and advanced manufacturing at the Metro Atlanta Chamber, sees cargo as a big driver of economic prosperity in the Southeast. His company works with the airport when officials are targeting new cargo carriers to serve Atlanta, and the airport is a major selling point when trying to bring business to Atlanta and the southeast United States.
“Shippers, whether they are manufacturers or retailers, have to get product to market and to reach their customers as well as get parts in to make their different cars or whatever it is their promise is to deliver for the customer,” Pertierra said. “(Cargo) is a critical enabler of the economy, and it’s a critical element of GDP growth.”
Cargo capacity at Hartsfield-Jackson is only growing, he said, and the airport has room to take on more carriers. Officials have had their sights set on Emirates’ cargo service for quite some time, but are also in talks about bringing more Asian carriers to the Southeast and have shown interest in nabbing Latin American carriers. For carriers out of South America, Atlanta is being pitched as an alternative to Miami International Airport, which has long been the gateway to the region. Pertierra said one of the marketing angles for Atlanta is to create an alternative transit point for perishables.
“Traditionally, Latin American carriers have put in and have built infrastructure in Miami,” he said. “You have a lot of carriers that could easily service Latin America from Atlanta.”
Fostering a partnership between the airport, local and state governments, and the business community is key to Atlanta’s cargo success. Logistics is a strategic industry for Georgia, so people around the state understand the importance of cargo as an economic driver and want to work to attract shippers to the area. Pertierra pointed to the Kia automotive plant in West Point, Ga., as a driver of cargo growth. The existence of that manufacturer helped bring the carrier Asiana into the fold, increasing Atlanta’s cargo activity.
“The long-term play is to attract the large shipper or manufacturer to your region and make your region a competitive place to do business and get talent. Your volumes are going to increase over time to service that market,” Pertierra said.
JFK airport is a shining example of cargo’s significance to regional economies and the important role cargo investment plays in bringing shippers to the area. In February, the New York City Economic Development Council and the Port Authority of New York and New Jersey released the JFK Air Cargo Study, which contained a number of recommendations for how to regain the airport’s lost cargo activity. JFK used to stand as the hub for European cargo and was one of the major cargo airports in the United States, but it has since lost out to competition from Atlanta, Chicago and other airports. The New York airport has also seen its facilities become outdated and in desperate need of upgrades.
The analysts who wrote the JFK report made 52 recommendations to help the airport improve as a domestic leader in the air cargo industry, stemming its 600,000-ton decline in cargo activity over the past decade. They targeted everything from infrastructure improvements to marketing the airport as a cargo destination. This last aspect is important, the economic development council’s David Hopkins said, because JFK is now losing out on cargo that should be flying through the airport.
“We’re not aiming to get the business going to the Midwest or the Southeast,” he said. “What we need to do is reclaim some of that market share that has overflown us.”
Hopkins and other industry experts know that taking back cargo market share isn’t as simple as building a few buildings and passing a few ordinances. Shippers need to see the area’s congestion problems reduced to want to route their cargo through JFK. Perception, Hopkins said, is key.
“We’re the airport for Europe. But we think we’re also the airport for a broader set of destinations,” Hopkins said. “We’re the airport that has the largest international lift in the country. We’re the airport with the highest value of goods shipped internationally, fairly balanced between imports and exports. We’re the airport with the biggest domestic market. We’re the airport with the best freight forwarder and customs community.”
This perception also extends to the airport itself. Shippers need to see that JFK is committed to creating a place for cargo and really wants to regain its former stature. This, in turn, will help boost the economy in the region surrounding the airport, bringing back jobs that were lost when air cargo tonnage declined.
“Aviation has been so focused toward the passenger side, and the passenger side drives so many of the investment decisions of airports, but the cargo industry is really a critical component to the aviation economy and the overall economy,” he said.
Overall, ACI’s preliminary 2012 rankings put Hong Kong International Airport at the top of the worldwide cargo pile for the third year in the row. The airport, which has a thriving transshipment business, finished the year with a throughput of 4.06 million metric tons, a 2.2 percent increase over 2011’s results.
Mark Whitehead, managing director of HKIA’s ground handler Hactl, said 2012 was a near record year for the company and the results show Hactl is still a leader as a cargo hub. For the first three months of the year, activity is as expected, he added, and Hactl should finish the year at the same level, or with a slight bump, from where the company ended 2012.
“In those figures, you’re starting to see, I think, a feeling that the U.S. is recovering,” Whitehead said of the first quarter results. “It will take longer for the consumer confidence in Europe to drive air cargo, but it will happen.”
Hactl has achieved this success, and the airport is at the top of its cargo game, because of strategic investment that has positioned Hong Kong as a hub. This dedication to cargo will continue with the addition of a third runway, which is currently in the initial stages of development. While the runway will serve the passenger side of the aviation business as well, it will ensure cargo maintains a healthy presence at the airport.
“It’s very essential for cargo growth. In a two-runway system, there comes a point when it’s saturated,” Whitehead said. “My feeling has always been that the airport would give more priority to passenger, and I think that without growth opportunities the hub status for cargo would be very much compromised. And it would be out of necessity to go (to other airports).”
To continue bringing in cargo activity and attracting shippers, Whitehead said there is a need for efficiency throughout the entire supply chain. All the stakeholders — from the forwarders to the customs officials and up the chain — need to take a vested interest in making Hong Kong an attractive destination for cargo. Hong Kong is one of the more expensive airports, Whitehead said, so everyone involved needs to make up for that with a higher level of service.
Partnership with the government is important as well. Investment is almost as important as clearing away red tape and making sure not to enact policies that hinder growth, Whitehead said. Hong Kong International Airport operates under an airport authority, but industry takes the lead in developing facilities and other aspects of the airport’s cargo presence, looking to the government when it needs support.
The air cargo dynamic at Hong Kong has changed a little this year with the opening of Cathay Pacific Airways’ new cargo terminal. Cathay, a former client of Hactl, is still in the testing phase for the new facility, and officials plan to move into the new terminal in stages. First, import cargo will be moved over at the end of June, followed by export cargo by the end of the year. For now, Cathay is still a Hactl client, but in 2014, the handler will be without this very large customer.
Hactl officials are trying to attract new carriers to the airport and even land some new customers that already fly into the airport, but Whitehead said replacing Cathay’s tonnage will be a lengthy process.
“We’re spending huge amounts of time, and have been for some time, looking at what we can do with that space to the benefit of our airline customers and the airport,” he said. “When you lose 1.2 million tons of cargo, you’re not going to fill that by somebody else suddenly coming in.”
Whitehead is talking to current airline clients about how they might use the space available to them, and he noted some of the space could be taken up by impending known-shipper regulations out of the European Union depending on how the screenings are carried out. Another option is to expand Hactl’s cross-border trucking subsidiary, which Whitehead said has always been constrained by space.